The Bank of England has raised rates by 0.25%

The Bank of England has raised rates

The Bank of England has raised rates by 0.25%

The Bank of England has raised rates by 0.25%.  This is the first rise for ten years.  The Bank Governor Mark Carney in the press conference described this as taking the foot off the accelerator.  It is not designed to put a brake on the economy.

The fall in unemployment removed the slack in the economy giving them room to make a move now.  They have warned that rates would move up so this was not a surprise for markets. If anything, the language of the statement was less aggressive. They now believe future hikes will be in line with market expectations rather than warning of faster rate moves.  This implies only two further quarter point rate rise in the next three years.

The changes

Variable rate mortgages are likely to see rates rise but the Governor pointed out that 60% of mortgages are on a fixed rate.  Fixed rate offers had already moved up a little ahead of the announcement but five year fixed rates maturing now may still be able to reset about 2% lower and 2 year mortgages 0.3% lower.  The impact on individual mortgage payments will on aggregate be muted with little discernible impact on consumer spending for the time being.

The Bank noted that wages have been rising less than inflation but they expect inflation to have peaked in October and it to come back slowly as the post Brexit fall in Sterling has less impact.  The Bank of England agents around the country speak to business and while they expected little wage growth this year they expect it to pick up next year.  However, this is dependent on productivity growth which has consistently disappointing for some years.

Markets appear to have taken their lead from a slightly softer tone and the pound has fallen about 1% against the Dollar, ten year gilts yields are down 0.05% (price up 0.5%) and the FTSE 100 index has moved up 0.5%.  Inflation expectations have moved slightly higher with index linked gilts rising slightly more than conventional bonds.

Speak to our team

If you would like to speak with one of our independent financial advisers please contact us on 01273 208813

or email [email protected] and we would be happy to assist you.

IEP Financial is authorised and regulated by The Financial Conduct Authority (FCA)

For more financial news and information sign up for our newsletter here

Specialist Income Protection for Doctors

The value of investments can fall as well as rise and past performance is not a guide to the future.  The content of this publication is for information only. It does not represent personal advice or a personal recommendation, and should not be interpreted as such. Please do not act upon any part of it without first having consulted an Independent Financial Advisor.